Vedanta's project for a bauxite mine on sacred tribal land of the Dongria-Kondh has been stalled by an Indian government report. Photograph: Gethin Chamberlain

Vedanta's controversial project to develop a bauxite mine on sacred tribal land in India was in jeopardy after a government inquiry said that mining would destroy the way of life of the area's "endangered" and "primitive" people.

In a strongly worded report, a four-member committee set up by India's environment ministry accused Vedanta Alumina, a subsidiary of the London-listed firm, of violating forest conservation and environment protection regulations and displaying "total contempt for the law". The report also noted "an appalling degree of collusion" by local government officials with Vedanta.

Campaigners who have fought to stop the development, whose supporters include the activist Bianca Jagger, welcomed the report "as the final nail in the coffin of Vedanta's plans".

Security forces are currently battling a Maoist insurgency in India's tribal districts, and the committee was concerned that the takeover of traditional tribal lands by large mining companies in the central and eastern parts of the country could be fuelling the unrest.

"Allowing mining in the area, by depriving two primitive tribal groups of their rights over the proposed mining sites in order to benefit a private company, would shake the faith of tribal people in the laws of the land, which may have serious consequences for the security and well-being of the entire country," the committee said.

Vedanta proposes to mine bauxite in the Niyamgiri Hills in the eastern state of Orissa, home to the Dongria and Kutia Kondh tribes, to expand its existing alumina refinery sixfold, something for which it had gained approval from the Orissa state government. But clearance for the mining project from the environment ministry has been delayed at least three years owing to strong opposition from environmental and tribal rights group.

Environment minister Jairam Ramesh said today that another panel would meet on Friday to study the inquiry report before his department takes a final decision on Vedanta's mining proposal. The mining project has been opposed for years by campaigners such as Survival International and ActionAid, along with Bianca Jagger and Michael Palin. For the first time, the anti-Vedanta campaign appears to have scored a victory.

"This report is utterly scathing about Vedanta's behaviour and confirms what Survival and others have been saying for years," said Stephen Corry of Survival International. "The findings are unequivocal – mining will destroy the Dongria Kondh and should not be allowed. Let's hope this is the final nail in the coffin for Vedanta's plans."

The Dongria Kondh, who number only 7,952, inhabit the upper reaches of the Niyamgiri, while the Kutia Kondh live in the foothills.

Vedanta wants to mine bauxite, which is refined to alumina and eventually turned into aluminium, at the top of the hill, which is considered by the Dongria-Kondh as sacred to their deity, Niyam Raja.

"More than seven square kilometres of the sacred undisturbed forest land on top of the mountain that has been protected for ages by the Dongria Kondh, and essential for the region's fertility, will be stripped of its vegetation, soil and rendered into a vast, barren exposed land," the committee said.

This would result in the inevitable degradation of the unique tribal enclave's rich wildlife and biodiversity and endanger the self-sufficient forest-based livelihood of the tribals and lead to their eventual extinction.